So let’s say that we agree to a ‘deal’ and you agree to send me bitcoins in advance to pay me for my job.

I set the price at 3 bitcoins for my work.

While writing this article, the current rate is about Rs 38,000 per bitcoin.

So, you are paying me about Rs 1.15 lakh for this covert operation.

2/9

Reuters

So how does it work?

The genius of bitcoin is in the way it works.

To verify that you actually own these 3 bitcoins you’ve promised to give me, we both need to trigger the bitcoin system to undergo an elaborate ‘verification’ process.

This involves the entire community of bitcoiners (also known as miners) who will go through complex coded algorithms and programmes to check that the 3 bitcoins you possess really exist and that they can be transferred to me.

(Newsweek has identified 64-year-old physicist Satoshi Nakamoto as the inventor of bitcoin.)

The miners will be paid a fee for their service and will also earn bitcoins as a reward for executing these complex calculations!

This earning of bitcoins is what creates new bitcoins in the system and introduces more currency into circulation.

The process of verification is programmed to get harder and harder every passing day and that is how the ‘supply of new bitcoins’ into the general pool is limited.

3/9

AP

Who created bitcoins?

A couple of weeks ago, a journalist in the US really took the bitcoins investigations to the last mile.

She hunted down bitcoin’s secret inventor (pseudonym “Satoshi Nakamoto”) to a house in the suburbs of Los Angeles and knocked on his door repeatedly requesting that she be allowed to speak with him.

The spectacled, introverted, super shy Japanese gentleman who loves toy trains was the last person you could imagine to be the founder and father of this rocket science currency.

Satoshi Nakamoto when directly questioned about his involvement, neither denied nor complied with the investigation, but it became clear that he was most probably the ‘inventor’ of this supreme currency that other geniuses later contributed to.

4/9

Reuters

Why are bitcoins so valuable?

The absolute brilliance of bitcoins is that only 21 million bitcoins will ever be made available in the market.

(So far 13 million are in circulation and 8 million more will be gradually released into the system by the end of 2140).

Given that the entire bitcoins currency is generated by algorithms, it is very easy to make sure that once the 21 million mark is reached there are no more bitcoins to be issued.

Bitcoins, their issue and their maximum circulation have been predetermined from the beginning and therein lies its innate value.

I would credit Nakamoto for blending technological and economic brilliance in his invention of bitcoins.

The currency, its rapid adoption, its growing value (of course with gyrations) teach all of us the Zen lesson: “Less is More”.

5/9

Reuters

What are the risks associated with bitcoins?

In February this year, the largest and the most active bitcoin exchange in the world — Mt Gox — went bankrupt.

Mt. Gox (don’t be tempted to think that the place is a mountain) was started in 2010 and quickly became the largest bitcoin exchange in the world, accounting for almost 70% of total traded volume of bitcoins in 2013.

Now, any ‘exchange’ that involves humans, machines and algorithms is prone to fraud, technical glitches and botch-ups.

The bankruptcy of Mt Gox was partially because 850,000 bitcoins belonging to its members and its own treasury worth $450 million at that time (since then, the value of bitcoins has appreciated!) had gone ‘missing’.

(In February, the largest bitcoin exchange — Mt Gox — went bankrupt because 850,000 bitcoins belonging to its members and its own treasury worth $450 million had gone ‘missing’.)

6/9

Reuters

How can a digital currency that is supposed to be verified and cross verified go missing?

The assurance of bitcoins, as I explained earlier, is that the currency is completely code-driven and every bitcoin ever generated, exchanged and used is always recorded.

So even if the bitcoins got stolen, shouldn’t they show up on some terminal somewhere?

This is like saying that even if you somehow manage to steal a Van Gogh painting from a highly guarded museum in Europe, what will you do with it?

After all, a Van Gogh costs millions and its buyers are usually museums and globally recognized art collectors.

The fact is that Van Goghs do go missing and never get found.

That is because there is an underground, grey market for everything — bitcoins included.

7/9

AFP

Is bitcoin just another scam, albeit a hi-tech one?

I don’t think so.

Bitcoins is a revolution, just like currencies that came into being to represent ‘stored value’.

Can you imagine what we would be doing today if we were still stuck to the barter system?

If you ordered a television from Flipkart, what would you give the goods on delivery (not COD) guy in return?

Some potatoes you had grown in the backyard? Rumour has it that Nakamoto was highly frustrated by the ‘expensive’ friction caused by intermediaries when people wanted to exchange cash.

Bitcoins have moved beyond the ‘geeky’ gamer type currency image.

Multiple ATMs of bitcoins have opened in the US and larger commercial establishments have begun accepting bitcoins in payments, such as the Virgin Galactic flights (that take you to the edge of space) and cost Rs 1.50 crore per journey.

8/9

AP

Facts about Bitcoin

- Bitcoin is a real currency that fluctuates in price and which can be exchanged to conduct real business.

- The business of transacting bitcoins and earning bitcoins in return is really the nerve centre of this esoteric currency, and this is what makes it unique.

- Bitcoin is a work of not one but many geniuses. Satoshi Nakamoto may have been the chief blueprint architect whose master design many other super clever architects used to build on.

- Bitcoins will get harder and harder to earn. Hence they will only keep growing in value as the years roll by.

- Bitcoin is vulnerable despite being proclaimed as a digital currency with a permanent trace. But its theft only points to the fact that it is potentially very valuable; who steals rubbish anyway?

- Bitcoin is here to stay. It may have its share of troubles, but its acceptability is growing leaps and bounds. The moment the RBI allows Indians to own a bitcoin, you should get one for yourself! Who knows, that may be the ‘Van Gogh’ of the next century?